This morning, AGL Energy (ASX: AGL) announced that its highly-anticipated demerger would not be going forward. Shares in AGL have been on a bullish trend lately and closed today at $8.72 a share. AGL shares have returned 42% in 2022 alone and 65% in the past 6 months.
In today’s announcement, AGL said that the Board of AGL Energy believes that the Demerger Proposal offers the best way forward for AGL Energy and its shareholders, which was also the Independent Expert’s view. However, the Board believes this path is no longer available.
Source: Tradingview.com
AGL Energy gives in to Market Pressure
AGL Energy believes that the Demerger Proposal would have been supported by a majority of retail and institutional shareholders, many of whom are long-term holders of AGL Energy shares. However, regarding anticipated voter turnout and stated opposition from a small number of investors, including Grok Ventures, AGL Energy believes the Demerger Proposal will not receive sufficient support to meet the 75% approval threshold for a scheme of arrangement.
In these circumstances, the AGL Energy Board considers it in the best interests of AGL Energy shareholders to withdraw the Demerger Proposal. AGL Energy will approach the Court for orders to cancel the Court ordered scheme meeting and will not proceed with the associated general meeting that was to have considered various related resolutions. Following the withdrawal of the Demerger Proposal, the AGL Energy Board will review AGL Energy’s strategic direction, including:
- Considering how the company moves forward in a way that will create long-term shareholder value in an environment where pressure on decarbonisation and energy affordability is accelerating;
- Utilising the extensive analytical work conducted in preparation for the Demerger Proposal and a thorough assessment of the strategic plans that were developed for AGL Australia and Accel Energy and their respective roles in the energy transition;
- Any new approaches from third parties regarding alternative transactions; and
- Further consultation with a broad range of stakeholders, including Grok Ventures and other shareholders, regulators, governments and communities.
The company’s strategic direction review will be overseen by a Board sub-committee co-chaired by Vanessa Sullivan and Graham Cockroft, utilising internal and external resources.
Australia is at a pivotal moment in the transition of our energy system, and the Board remains strongly committed to decarbonisation. AGL has been in ongoing discussions with key stakeholders and believes that the relevant dates for the closure of coal-fired power stations will continue to be accelerated.
AGL’s next steps
As Australia’s largest energy generator, owner of the largest portfolio of renewable generation and storage assets of any ASX listed company, and a leading retailer of energy solutions, AGL Energy and its people have a critical role in just transition. The Board notes the role that the rapidly changing public policy settings for the energy market, the continuing uplift in wholesale energy prices and the growing stakeholders’ expectations will all play in setting the future direction for AGL Energy. The Board is committed to working actively with all stakeholders, including the government, to decarbonise AGL Energy’s business at the fastest rate possible while ensuring energy system stability, energy affordability for retail and industrial customers, and appropriate shareholder value outcomes.
AGL Energy will report back to shareholders and investors in September and update the progress of the review of AGL Energy’s strategic direction at the time of its FY22 results announcement. As previously disclosed, AGL’s estimated expenditure is approximately $160 million of the total $260 million estimated cost of the Demerger Proposal. The Board will draw upon the work undertaken to date in its review of AGL Energy’s strategic direction. It will seek to ensure that the efficiencies gained through the review of the AGL Energy structure as part of the Demerger Proposal are captured in the future, including further changes in the short term to the management team to reflect the fact that the Demerger Proposal will not be proceeding.
Board and Management Renewal
As a result of the above decisions, the AGL Energy Board has determined that Board and Management renewal must occur through an orderly, expedited transition period with appropriate external advice. The decisions agreed today are:
- Chairman Peter Botten will resign from the Board upon the appointment of a replacement independent Chairperson.
- The Board and Graeme Hunt have agreed that Mr Hunt will step down as Chief Executive Officer and Managing Director. Mr Hunt will continue to act in this role until a new Chief Executive Officer and Managing Director is appointed. The Board will immediately undertake a search process to complete this appointment as soon as possible.
- Jacqueline Hey has resigned as a Non-Executive Director effective 30 May 2022.
- Diane Smith-Gander will resign from the Board following AGL’s FY22 full-year results in August.
The Board will immediately commence a search process to identify potential new Non-Executive Directors of AGL Energy. This will include discussions with all relevant stakeholders.
“While the Board believed the Demerger Proposal offered the best way forward for AGL Energy and its shareholders, we have decided to withdraw it,” AGL Energy Board Chair Peter Botten said. “The Board will now undertake a review of AGL’s strategic direction, change the composition of the Board and management, and determine the best way to deliver long-term shareholder value creation in the context of Australia’s energy transition.
